Rand continues Decline in light of Credit Rating Review

The rand continued its decline in trade on Monday (3 April) as political uncertainty underpins predictions for the week ahead – including a credit rating review on Friday.

By 12h07 on Monday the rand lost 1.3% of its value against the greenback, trading at R13.59, having closed last week at R13.42.

Dollar/Rand – down 1.30% to R13.59
Pound/Rand – down 1.16% to R17.00
Euro/Rand – down 1.36% to R14.50

The rand has been in sharp decline since Zuma announced a cabinet reshuffle, which included the sacking of finance minister Pravin Gordhan and his deputy, Mcebisi Jonas.

Uncertainty around the future of the National Treasury was not quelled following a press briefing by new minister of finance, Malusi Gigaba, who signalled that he would implement “big changes” in the department.

Chief among Gigaba’s priorities is overseeing the redistribution of wealth to the country’s black majority, stating outright that he will direct R500 billion to black-owned businesses, and the masses.

Investors were rattled by president Zuma’s changes, with many analysts expecting the fallout to continue well beyond the initial reaction which has hit the rand and government bonds.

Focus now turns to credit rating agencies, which are expected to deliver their reviews on South Africa in the coming weeks, with Moody’s first in line to deliver its report on Friday (7 April).

Moody’s currently has South Africa at two notches above junk status, with expectations that the group will cut the country to one notch above junk.

Two other agencies, however – S&P Global and Fitch – have South Africa at one notch above junk, with the wide expectation that at least one (if not both) will cut South Africa’s sovereign debt rating to below investment grade, which will knock the rand yet again.

Sub-investment grade countries suffer from having their borrowing costs spike significantly, while many international investors are blocked by policy from investing in such countries or from buying their debt.

Predictions for where South Africa is headed post-Gordhan includes the country’s forecast GDP growth for the year dropping from a projected 1.1% to 0.2%, and for the rand to sink to R15.50 to the dollar as political instability builds ahead of the ANC’s elective conference in December.

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